Notes on a Scandal: Oil Spill Monsters

Rumor has it that the Global North - rich in human resources and ingenuity - has systematically exploited the Global South - rich in natural resources - for personal gain. This is not entirely true.

"Global South" and "Global North" are alternative designations for developing countries and developed nations, respectively. It's a nod to the United Nation's Human Development Index; a low score (<0.5) indicates there's room for economic and social improvement. The geographic location of said countries, however, is approximate: e.g., Nigeria (0.4) is technically in the Northern Hemisphere, as New Zealand (0.9) and Australia (0.9) are in the Southern.

The truth is that nations of the Global North have natural resources as do their Southern counterparts. However, an economic principle called Comparative Advantage allows some countries (in the Global North) to exploit the benefits of world trade (globalization), albeit often at the expense of each other (read: the Global South). So Florida becomes a major producer of oranges, although the citrus treat is indigenous to Asia. New agricultural methods, technology and lower costs can remarkably make "Florida oranges" a household name.

Oil doesn't make one think of the United Kingdom, but believe it or not, it's rich in it! Because of comparative advantage, it's cheaper for a country rich in applying the human resource to technology to import it from say, the Persian Gulf or the Niger delta. Since the early 1900s, the UK has had a presence in the global oil industry. Through a series of mergers & acquisitions over the years, we have present-day energy conglomerates BP and Shell. The two UK energy firms have had their share of ups and down in the global markets, including anathema to Big Oil: a spill. Or worse yet, an environmental catastrophe.  Volatile stocks, environmental damages and consumer confidence have left both firms humbled. Or has it?

BP:

• Most recently claimed culpability in the Deepwater Horizon oil rig disaster last April. The Consequence: BP has to cough up $20 billion to compensate residents and businesses for the damaged coastline. The Rub: The claims & distribution process for victims is slow and unjust. Only 25% of the BP compensation fund has been paid out in the last year! Delasol filmed on location this Spring alongside a Native American community in Louisiana.
• Profits: Up 21% from the previous quarter. Consider that rising commodity (gas) prices is a boon for BP; though this is only part of the story.
• Production is down 11% from the same time last year. The company said the damage to its reputation as a result of the Gulf Oil Spill could hurt global business prospects now and in the future. Nonetheless, a new joint venture in India in is the works.
• Share Price (BP) as of August 8th closed nineteen cents above $38 on the New York Stock Exchange (NYSE), hovering closest to it's 52-week low of $34.82 last August. Not a good indicator of investor confidence.

this ad does not reflect the position of the delasol group, but it was both effective and apt.

Shell:

•  After considerable pressure from the United Nations and a lawsuit on behalf of a Nigerian king, the Royal Dutch Shell company has accepted liability for two oil spills that devastated a community's freshwater supply in 2008. At least 7,000 oil spills have occurred in the area since Shell first discovered the Niger delta oil in 1956.
• Profits (for the second quarter) are up 97% from a year ago, again highlighting the industry's heavy dependence on retail oil prices.
• Production is down year-on-year, but relative to its competitors, prospects are looking up for Shell. Although many oil-producing nations restrict the movement of Big Oil, there is hope in the profitability of the $20B Pearl project in the Persian Gulf state of Qatar.
• Share price (RDSA) is doing relatively (to itself and other oil stocks) well and trading within an acceptable range for the stock on both the NYSE and the FTSE 100 index in the UK.

So are oil spills a cause for shame or the impetus to fame? Shell has fared well while BP has struggled, but what's the end game for these firms? More production leads to higher profits and a greater number of environmental incidents. If handled ethically (and what is that?) Big Oil can bring the change we want to see. It seems to be a good start for Shell to own up to the land and it's people before its own bottom line.

your comments are welcomed!
dls